What MDs Can Learn from Private Equity Turnaround Strategies

Introduction

I have had numerous conversations with both PE and non-PE management teams. On one side, I often hear, “We are PE-owned, so we need to act in the best interests of the PE firm.” On the other, there’s the sentiment, “We don’t act like a PE firm because we are privately owned, so we’re not ruthless.” While I recognise the feelings behind both perspectives, the reality is simple: the primary purpose of any business is to make profit and ensure long-term viability. When the chips are down, both ownership structures ultimately pursue the same goal. The main difference is that PE firms tend to be more decisive and upfront about the purpose of the business, leaving no room for indecision, a quality that can be crucial in turbulent times.

In challenging times, many managing directors of privately owned companies tend to misinterpret private equity tactics, assuming they’re aggressive and unsympathetic. However, a closer look shows that PE firms aren’t out to dismantle businesses; rather, they focus on the same essential priorities you value, maintaining operational stability, preserving cash flow, and ensuring long-term sustainability. This article examines how private equity firms respond during downturns and outlines practical lessons that MDs can adopt to bolster their own turnaround strategies.

The Primary Objective of Private Equity

At its core, private equity is about generating attractive, long-term returns by unlocking the latent potential within a business. This isn’t achieved through reckless or overly aggressive maneuvers. Instead, PE investors apply financial rigour, operational expertise, and strategic insight to improve processes, restructure operations, and ultimately enhance value. Their focus is on practical, measured interventions designed to stabilise the business before charting a path to growth.

Comparing Ownership Models: PE-Owned vs. Privately Owned Firms

Private equity–owned firms typically operate under a defined exit strategy and a short-to-medium-term focus, whereas privately owned companies often prioritise long-term stability and legacy concerns. Despite these differences, both ownership models share a steadfast commitment to business sustainability and success. Whether the aim is maximising investor returns or preserving a family legacy, neither party is willing to tolerate prolonged underperformance. Both prioritise operational stability, cash flow preservation, and the protection of their reputations, recognising that survival is essential before any strategic expansion can be contemplated.

Both models share several core attributes, including:

• Commitment to Business Continuity: Maintaining stable operations and ensuring the business remains viable during challenging periods.
• Cash Flow Preservation: Safeguarding cash flow as a critical resource for ongoing operations.
• Cost Optimisation: Streamlining expenses and enhancing operational efficiency.
• Reputation Management: Protecting the company’s credibility and market standing.
• Swift Crisis Response: Being prepared to act decisively when challenges arise.
• Financial Prudence: Upholding strong fiscal discipline and tight financial controls.
• Stable, Well-Motivated Workforce: Prioritising employee engagement and retention to preserve essential organisational knowledge.
• Continuous Improvement Culture: Encouraging ongoing learning and process refinement to stay agile.
• Strong Internal Communication: Ensuring clear communication channels that align the workforce with strategic objectives.

The Importance of Decisive Action

One of the key differentiators between private equity–owned firms and many privately owned companies is the speed of decision-making. Driven by portfolio managers who are under pressure to deliver returns within defined timeframes, PE firms tend to act rapidly when a downturn occurs. In contrast, MDs of privately owned companies might lack this external impetus, which can lead to hesitancy and slower responses. Over time, such indecision can allow problems to compound, potentially necessitating deeper, more disruptive interventions. In the worst case, delayed action might even jeopardise the firm’s long-term viability.

A critical enabler of this rapid decision-making is the deliberate organisational structure employed by PE firms. They set up robust board advisory structures and maintain ready access to a network of experts, from financial analysts to operational turnaround specialists. This framework minimises indecision by ensuring that each decision is well-informed and backed by specialised expertise. Importantly, these external resources operate within strict guidance, implementing only agreed-upon actions rather than having free rein. This ensures that every intervention is balanced and aligned with long-term strategic goals, taking into account the impact on employee morale and overall business stability.

During a crisis, while immediate action is critical, both ownership models recognise the importance of returning to these core principles. Any measures taken to stabilise the business must not only address the urgent need for survival but also lay the groundwork for a robust recovery that aligns with the longer-term shared goals. In other words, the crisis response should be designed with an eye on re-establishing the attributes listed above, ensuring that short-term fixes contribute to, rather than detract from, sustained long-term success.

A Myth-Busting Note

Before we proceed, let’s address a fashionable phrase you may have heard down the pub: “asset stripping.” Despite the liberal use of this term in some circles, in my experience, no PE firm is fixated on wrecking businesses. In fact, the notion of a ruthless, asset-stripping PE firm is probably a myth—coined and perpetuated by Hollywood and picked up by someone who wanted to sound like they knew what they were talking about.

I’m not saying there aren’t instances where large deals have been structured to sell off certain assets to enrich a deal or where businesses are acquired and restructured to achieve economic scale. Nor am I ignoring situations, such as accelerated sales processes triggered by potential insolvency, where asset divestitures occur. However, these cases are relatively uncommon and typically confined to distressed situations. For the most part, PE firms are structured to take decisive, measured actions that protect and enhance long-term value. It’s important to recognise that the primary goal, whether in a PE or privately owned setting, is to ensure the business remains profitable and sustainable.

How PE Firms Act During a Downturn

Contrary to popular belief, the actions of a private equity firm during a downturn are not about radical disruption for its own sake. Instead, their approach is focused on stabilising the business rapidly and then paving the way for recovery. Their interventions typically include:

• Operational Restructuring: Reviewing and streamlining operations to improve efficiency and reduce unnecessary costs.
• Management Adjustments: Implementing leadership changes or enhancing management capabilities when gaps are identified.
• Strategic Repositioning: Revisiting the business model to ensure alignment with current market conditions and opportunities.
• Financial Engineering: Adjusting the capital structure to secure the liquidity needed for turnaround initiatives.

These steps are not aggressive for aggression’s sake; they are practical measures designed to align the business with its long-term value creation goals while preserving critical aspects such as employee welfare and organisational culture.

Lessons for Privately Owned Companies

For MDs of privately owned companies, there are clear takeaways from the private equity playbook:

• Focus on Core Fundamentals: Prioritise cash flow, cost optimisation, and operational stability as the foundation of any turnaround strategy.
• Be Decisive, But Thoughtful: Rapid action is crucial in a downturn, but ensure that each decision reinforces long-term objectives and protects the welfare of your workforce.
• Empower Your Team: A stable, well-motivated workforce is invaluable, invest in employee engagement and maintain strong internal communication.
• Plan for Recovery: Address immediate challenges while keeping an eye on long-term recovery and growth.
• Learn from Best Practices: Adopt strategies like operational audits, financial discipline, and strategic repositioning that have proven effective in the private equity space.
• Align with Personal Goals: Even for so-called lifestyle businesses—where the primary aim might be to sustain a particular way of life—the underlying principles remain unchanged. Owners depend on a healthy, thriving business to support their personal lifestyle, underscoring the need for decisive, strategic action during downturns.
• Recognise Universal Financial Imperatives: Whether you’re running a privately owned business, a charity, or even a local village hall or church, generating a surplus is essential for long-term survival. Even not-for-profit organisations need to manage their finances effectively to maintain their services and support their missions.

Top Tip

If there’s one piece of advice I’d pass on, it’s to get back to first principles. Change the mindset of your entire business—not as a fleeting fad, but as a core, ongoing approach. Focus on understanding not just what things cost to buy, but how much revenue you need to generate to cover those costs. Reinforce that sales is the lifeblood of your business, ultimately, it’s your revenue that pays for everything. Make it a recurring theme in your meetings and communications.

You might be surprised that many team members don’t even know your margins; if someone has to grab a calculator to figure it out, that’s a win, it means you’re driving home a powerful point about financial discipline. For example, consider a humble block of post-it notes that costs around £5. With an operating margin of 10%, that £5 expense effectively requires you to generate £50 in revenue to be justified. Similarly, an additional administrator with a base salary of £25,000 would need roughly an extra £250,000 in revenue (assuming a 10% Operating margin & ignoring Tax and NI) to cover the cost.

Conclusion

While private equity firms may sometimes be perceived as overly aggressive, a closer examination reveals that their strategies during a downturn are fundamentally about preserving and enhancing long-term value, a goal that resonates with every managing director of a privately owned company. By focusing on core fundamentals, acting decisively through a well-structured decision-making framework, and ensuring that short-term crisis responses align with enduring business attributes, MDs can navigate challenging times more effectively. Ultimately, the practical, measured approaches of private equity offer valuable lessons for any business leader committed to long-term success.

The Business World Has Changed—Have You?

In today’s rapidly evolving world, business leaders are constantly adapting to new technologies, marketing channels, and global competition—challenges unimaginable to previous generations. This accelerated transformation underscores a critical reality: no CEO can master every domain. While this has always been true, it’s more evident than ever today.

You may have heard the military term VUCA—volatility, uncertainty, complexity, and ambiguity—used to describe modern battlefields. Business leaders contend with a similar environment, where the pace of change and unpredictable market forces demand resilience, agility, and clarity. In this landscape, risks and opportunities co-exist.

We live in an era of breathtaking change. The business landscape that once felt familiar and predictable has been replaced by a world of volatility, uncertainty, complexity, and ambiguity—VUCA. For many leaders, this shift can be disorienting. The strategies and instincts that once ensured success may no longer apply. The pace of change has accelerated, leaving some feeling untethered from the business world they once knew so well.

If you’re experiencing an underlying sense of uncertainty—one that lingers in the background and disrupts your confidence—you are not alone. This new environment challenges even the most seasoned leaders. But within these challenges lie potential opportunities, provided you are equipped with the right mindset and strategies to navigate them.

The Whirlpools of Business: Understanding VUCA

Warren Buffett famously stated, “You only find out who is swimming naked when the tide goes out.” But what happens when the tides are no longer predictable, when opposing currents create whirlpools of disruption? Business today is not just about the tide going out—it’s about managing multiple crosscurrents, each pulling in a different direction.

The military coined the acronym VUCA in the 1980s to describe the challenging and unpredictable nature of modern warfare. The business world has since adopted the term, as it perfectly encapsulates the conditions we now face:

• Volatility: Sudden, unpredictable changes that make long-term planning difficult.
• Uncertainty: A lack of clarity about what’s coming next.
• Complexity: Intricate, interwoven challenges that defy simple solutions.
• Ambiguity: A fog of confusion where cause and effect are difficult to define.

When confronted with VUCA, the instinctive response for many is fear—fear that leads to inaction. When we don’t know what’s coming next, it’s easy to fixate on worst-case scenarios. But dwelling on hazards without taking action is a recipe for stagnation. Left unchecked, VUCA can spiral into negativity, paralysing decision-making and stalling business growth.

The Fog of War: Business Lessons from the Battlefield

The military’s experience with VUCA provides valuable insights for business leaders. On the battlefield, uncertainty is the only certainty, and inaction is not an option. Leaders must make decisions amidst incomplete information, shifting conditions, and high stakes.

Successful military strategies involve recognising VUCA as an operational reality rather than an insurmountable obstacle. They train leaders to anticipate change, develop adaptive strategies, and make confident decisions even when the path forward is unclear.

Business leaders can do the same. By acknowledging VUCA as an inevitable part of the modern business environment, they can prepare for uncertainty rather than be overwhelmed by it. The goal is not to eliminate volatility, uncertainty, complexity, or ambiguity, but to develop the resilience and strategic agility to operate effectively within them.

The Psychological Impact of VUCA: Fear vs. Anxiety

VUCA affects not just businesses, but the people within them. Our biological responses to uncertainty—deeply ingrained over millennia—can sometimes work against us. Understanding these responses is key to managing them.

• Fear occurs when we are directly confronted with a challenge.
• Anxiety is the anticipation of a challenge before it happens.

Consider the example of standing in a que for a rollercoaster. As you watch the ride dipping and looping, you might feel anxious about the experience ahead. But once you’re strapped in and the ride begins, fear takes over as you hurtle toward the ground.

These same dynamics play out in business. Leaders may experience anxiety when anticipating change, fearing the unknown. But once they are actively engaged in tackling a challenge, they shift into a more focused and action-oriented state. Recognising this shift—and learning to harness the energy of fear rather than being paralysed by anxiety—can make all the difference.

I am often asked about my experiences in combat situations and how people respond to high-pressure environments. I may have been fortunate that my service time was spent in elite units who had been highly trained and knew how to respond. But after the initial eruption of action—contact with the enemy—things slowed down. Instinct and training combined to react in an appropriate way to the situation. If the situation required an immediate instinctive response, that’s what we did. If we had time, even 30 seconds to think, we took it.

To this day, some 30+ years after leaving the military, I still use the process of Think, Plan, Do. In high-pressure situations, whether in combat or business, this structured approach helps ensure that actions are deliberate and effective, rather than reactive and chaotic.

Transforming VUCA into a Competitive Advantage

VUCA isn’t going away. The question is: how will you respond?

In my life as an Operational Advisor and Interim Leader for financial institutions, my work predominantly revolves around improving portfolio companies under pressure—both stressed and distressed. Although people within those businesses rarely know about my previous military service, I realised that marching up and down the office was a dead giveaway some time back. My unique experience from the military helps me understand and tune into the people on the ground within those businesses. The anxiety and fear they feel are the same as in combat.

Our primitive brain, buried deep within our modern brain, cannot distinguish between a saber-tooth tiger, an enemy ambush, or the stress of falling short of a banking covenant. As humans, our stress hormones create the same effect. Understanding this most basic of human instincts is a superpower. It allows me to guide business leaders through uncertainty, helping them regain control and clarity.

Rather than resisting or fearing change, your competitors are facing the same environment and likely in the same situation. They may be bigger, have more cash, or have shinier products, but if you can turn VUCA to your advantage, reacting faster than your competitors, this could become a competitive advantage. In the military, we call this a manoeuvrist approach—speed of manoeuvre from one activity to another, for example, from defensive operations to offensive operations.

The Future Belongs to Those Who Adapt

VUCA presents formidable challenges, but it also offers incredible opportunities for those willing to embrace change. Leaders who learn to navigate volatility, uncertainty, complexity, and ambiguity will not only survive but thrive.

The business world is not returning to its previous state of predictability. Instead, we must prepare for ongoing transformation. By developing resilience, adaptability, and a proactive mindset, you can turn VUCA from a source of fear into a catalyst for success.

A 20th Century Problem with a 19th Century Solution

The difficulty of executing strategy is well-documented and widespread. Research indicates that a significant number of organisations struggle to translate strategy into action. A study found that 67% of well-formulated strategies fail due to poor execution (ClearPoint Strategy). Even when businesses develop robust strategic plans, the majority falter at the implementation stage.

Even more striking is that this problem has endured for decades. Walk into most boardrooms today, and the conversations about execution remain remarkably similar to those held 20 years ago. While management approaches have evolved, many organisations still wrestle with the same fundamental challenge: bridging the gap between strategy and execution.

A problem that is both widespread and persistent suggests deep-seated causes. The solution, therefore, must be equally fundamental. Surprisingly, it is. The answer has existed for a long time. It is relatively simple—almost common sense. Yet, as is often the case, common sense is not the same as common practice.

This naturally leads to another question: If the solution has been around for so long and is easy to understand, why isn’t it widely adopted?

There are two main reasons:

1. The legacy of outdated management thinking
   20th-century management principles have built barriers to adopting more effective approaches. Even though modern thinkers have challenged these principles, their influence remains embedded in organisational structures.
2. A lack of a widely accepted alternative
   While frameworks such as Agile, Lean, and OKRs have emerged, no single methodology has replaced traditional management practices across the board. Many managers acknowledge the limitations of legacy models but struggle to consistently implement better approaches.

The Legacy of Scientific Management

During the industrial revolution, businesses were structured around factories that operated like machines. Workers were treated as cogs in those machines, and management’s role was to keep everything running smoothly.

In 1911, Frederick Winslow Taylor’s The Principles of Scientific Management formalised this mindset. His approach was built on three core premises:

1. It is possible to know everything needed in advance to plan effectively.
2. Planners and doers should be separate.
3. There is one correct way to perform a task.

Taylor’s principles revolutionised efficiency in repetitive, mechanical tasks. By studying physical labour in minute detail—such as the optimal way to move pig iron onto railcars—he developed systems that dramatically improved productivity. Today, many of these tasks are automated or standardised in software.

However, businesses also require activities that involve judgement, creativity, and adaptation—areas where Taylor’s assumptions break down. The more dynamic the environment, the less useful rigid, top-down control becomes.

Taylorism has faced substantial criticism in modern management. One of the major critiques is that Taylorism dehumanises workers by treating them as components of a machine, focusing solely on efficiency at the expense of autonomy and satisfaction (Runn.io). This approach leads to disengagement and lack of motivation—factors that are counterproductive in today’s dynamic work environments.

Additionally, Taylorist structures are often ill-suited to complex modern organisations. The emphasis on standardisation and control can stifle innovation and responsiveness, both of which are critical in fast-paced markets. Despite the rejection of Taylorist ideas in theory, some businesses inadvertently reinforce them through rigid performance management systems, compliance pressures, and hierarchical planning.

The 19th Century Solution: Leadership Based on Alignment and Autonomy

This brings us to the second reason strategy execution remains such a challenge: organisations lack a widely adopted set of management disciplines suited to today’s complex and unpredictable environment.

However, a highly effective alternative has existed for over a century—long before Taylor’s mechanistic model took hold.

Field Marshal Helmuth von Moltke, a 19th-century Prussian general, faced a challenge remarkably similar to modern leadership: how to execute strategy in a fast-changing, unpredictable environment. He recognised that traditional, top-down control fails when agility is required. Instead, he developed a leadership philosophy based on alignment and autonomy.

Von Moltke’s insight was simple yet profound: The more alignment you create, the more autonomy you can grant. This shifts execution away from reliance on an exceptional leader and instead builds an organisation capable of intelligent, adaptive decision-making at all levels.

Many modern management frameworks, including Agile and decentralised decision-making models, share parallels with von Moltke’s approach. However, despite their proven effectiveness, many organisations struggle to integrate these principles into their core operating models.

Rather than relying on rigid control structures, the most effective organisations today behave more like adaptive systems. They empower individuals with clear intent, ensuring that teams have both the context and the authority to act decisively in uncertain environments.

The solution has always been there. The challenge is adopting it.